CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

A firm decides to issue zero-coupon debt rather than full-coupon debt. The effect on net income over the life of the debt is that interest on zero-coupon bond ______

A. rises each year and hence the net income decreases over the life of the debt.
B. falls each year and hence the net income decreases over the life of the debt.
C. falls each year and hence the net income increases over the life of the debt.
Correct Answer: A

The effect on net income over the life of the debt is that interest on the zero-coupon bond rises each year and hence the net income decreases over the life of the debt.

User Contributed Comments 5

User Comment
Emily1119 Can't get it. Why interest on zero-coupon bond rise each year?
Thanks.
hoyleng Zero coupon is issued at discount...
johntan1979 It has the same effect as a discount bond, minus the coupon payments.
sshetty2 i think it should say interest expense
khalifa92 in this reading, you are doing bonds from the perspective of the borrower.
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